When someone else steps in
A takeover is when a company makes an offer to take control of
another company by buying enough shares so they can run meetings
and decide who gets elected as directors.
If you own shares in the target company, there are a number of
things to consider before you decide to accept the offer. You
should also understand what happens if you decide not to accept the
bid, or vote for the scheme.
How a takeover works
Usually a takeover bid or scheme of arrangement will be
With a takeover bid, you will receive a written offer to buy
your shares, which you can either accept or reject.
If a scheme of arrangement is used, all shareholders will vote
on the offer and your shares will be acquired only if the
resolution is passed.
If you are a shareholder of the target company, you could be
offered cash, shares or a combination of both.
Before you decide
Read the documents
You will receive different documents depending on the kind of
takeover offer. Make sure you read and understand what you need to
do to either accept or reject the offer.
You should also keep track of any changes to the bid or scheme,
as well as the share price of the companies involved.
Takeover bid documents
In takeover bids, once a bid is announced, the bidder must make
an offer to buy your shares within 2 months.
You will receive two statements. The bidder's statement
describes what the bidder is offering you for your shares. It also
describes who the bidder is, what it does and what the bidder
intends to do with the company if the takeover is successful.
You will also receive the target's statement from the company
you own shares in. It usually contains a recommendation from the
company's board on whether you should accept or reject the bidder's
offer. You should read through the target's statement thoroughly
and think about whether you agree or disagree with the board's
recommendation and the supporting reasons.
You should wait until you have read the target's statement
before responding to the bidder's offer.
With schemes, you will receive a scheme booklet from the company
you own shares in. There are additional requirements for schemes
that mean you may not get the scheme booklet until a few months
after the scheme is announced.
The booklet will include the following information:
- What you will receive under the scheme
- Who will acquire your shares
- If you are offered shares in the company that is buying your
shares, what the two companies will look like once merged.
The scheme booklet may also include an independent expert report
that outlines whether or not the offer is fair and reasonable and
in your best interests.
Under a scheme, the offer will be put to a vote of all
shareholders and your shares will only be acquired if the
resolution is passed. You should read the scheme booklet carefully
before deciding how to vote. You can vote in person at the scheme
meeting or send in your proxy form.
Understand the conditions
Many takeovers and schemes are conditional. For example, a
common condition of a takeover bid is that the bidder must acquire
a minimum number of shares under the bid. If the minimum number is
not acquired, the bid will not proceed.
Conditions are usually disclosed when the bid or scheme is first
During a takeover bid the bidder can drop certain conditions up
to 7 days before the offer closes. You may want to wait until this
final period to decide so you can see what the bidder does. If you
accept the takeover offer straight away, you may not be able to
withdraw your acceptance if a better offer is made later.
Look out for changes to the bid or scheme
When a takeover bid or scheme is announced, things can move
quickly. The price offered may increase, or the period for
accepting the takeover bid may be extended. Follow the media to see
if the bidder has changed its position on anything in relation to
You should visit the Australian
Securities Exchange (ASX) website regularly to see if any
announcements have been made. In some cases, information will be in
ASX announcements, rather than sent to you directly.
Watch the share price
The share price can be a good indicator of whether the market
thinks the bid or scheme will succeed. Generally, when the bid or
scheme is first announced, the price of shares in the company rises
to around the level of the offer price. If the market expects a
better offer to emerge, share prices can sometimes be higher than
the offer price. On the other hand, if the market thinks the offer
is unlikely to succeed, the share price may be less than the offer
If you are happy with the price offered, and the market price is
around the offer price, an alternative may be to sell your shares
Case study: Susanna decides on a takeover
company has made a takeover bid for Green Time Corporation,
offering its own shares as consideration. As a long-time
shareholder, Susanna wants to know whether she should accept the
takeover offer. She reads the bidder's statement, which says that
the 'implied value' of the offer (the value of the shares on offer
based on recent trading prices) is above Green Time's current
Susanna thinks about accepting but wants to make sure. She waits
to read the target's statement. In the statement, Green Time's
board urges shareholders not to accept the takeover offer as it
believes Green Time is being undervalued and the bidder's shares
are illiquid and volatile. After reading the target's statement,
Susanna agrees and decides to hold onto her shares and not accept
the takeover offer.
If you accept the bid or the
scheme is approved
Accepting a takeover bid
If you accept the offer and the conditions of the offer are
satisfied at the end of the offer period, you sell your shares
directly to the bidder without paying any brokerage costs. The timing for the
bidder to pay you cash and/or provide you with the shares it
offered will be set out in the bidder's statement.
Provided you have given the bidder the necessary documents, you
should receive the cash and/or shares the bidder is offering no
later than 21 days after the bid is closed.
When a scheme is approved
If the scheme is approved by the shareholders it must then be
approved by the court before it can be implemented, and the cash
and/or shares are paid to you. The FAQ section in the scheme
booklet will explain the likely timing, and what events could delay
If you don't accept the bid
or vote against the scheme
Not accepting a takeover bid
If you decide not to accept the offer, you generally do not have
to sell your shares to the bidder. However, if they get 90% or more
of the company they may be able to compulsorily acquire your shares
on the terms offered under the bid.
If the bidder gets a large controlling stake in the company but
less than 90%, the market for your shares may be less liquid, which will make them harder to
sell to anyone else later. The bidder will have control of your
company, so they can influence the decisions such as board
appointments and dividend payments.
Not accepting a scheme
Schemes are 'all or nothing'. If enough shareholders voted in
favour of the scheme and the court approves it, then all
shareholders (including you) are bound even if you voted against
it. This should be clearly described in the scheme booklet, such as
in the FAQ section.
If you need further advice on takeovers,
consider talking to your financial adviser, a stockbroker,
accountant or lawyer.
Last updated: 20 Aug 2013